Future Challenges for Big Pharma - - Dr. Aurup 1-11-12

1. Future
Challenges for
Big Pharma
Peter Aurup, MD
VP & Head - Global
Clinical Trial
Operations
January 11, 2012

2. Clinical Development: The Pressure is On!
• We face Challenges
• We have Choices
• We are making Changes… NOW!
Regulatory Pressures
Pricing Pressures
Generic Competition
IP Protection
Clinical Effectiveness
Rising Expenses
Patient Enrollment
Investor Demands
Consumer Mistrust
2

3. CHALLENGES

4. Challenges: The New Industry Reality
1. Development of new medicines and vaccines has become more
costly and complex
2. Return on Investment (ROI) is in many cases negative for the
pharmaceutical R&D industry
3. The regulatory landscape is transforming
4. The bar for new drug approval and/or reimbursement is constantly
being raised
5. Investor and consumer pressures are mounting
6. Patents are expiring at a record rate
7. Global reach is now an imperative
8. Changing disease states and aging populations call for an
emphasis on new or different therapy groups – Innovation is key!
4

5. 1. Development Cycle Times are Longer
R&D CT
Years % Change
NME R&D Cycle Time - Composite 98-00
99-01
-
-2%
Industry Median 00-02
01-03
14%
-8%
02-04 4%
98-00 4.4 7.1 11.6 03-05
04-06
1%
3%
05-07 5%
99-01 4.2 7.1 11.4 06-08 -2%
07-09 1%
00-02 4.3 8.6 13.0 08-10 1%
01-03 4.0 7.9 11.9
02-04 4.0 8.4 12.4
03-05 4.4 8.1 12.5 Disc Mdn
04-06 4.4 8.5 12.8 Dev Mdn
05-07 4.5 9.1 13.5
06-08 4.5 8.8 13.2
07-09 4.5 8.9 13.4
08-10 4.4 9.2 13.6
0 5 10 15
Years
NME R&D Composite Cycle Time: Target Identification through First Approval in a Major Market
KMR Group 2011 R&D Performance
5

6. 1. Development Costs Have Increased Dramatically
Industry Cost of a Successfully Developed New Molecule 1, 2
$1,400
$1,300
$1,200
Millions of $
$1,000
$802
$800
$600
$445
$400
$319
$200 $137
$0
1976 1988 1992 2000 2010
• Cost includes cost of failure
1 CBO report/Tufts, 2006, 2011; 2 DiMasi et al 2003
6

7. 1. Development Success Rates Have Dwindled
NME Success Rates By Phase And Overall
2006-2010 Industry
KMR Group 2011 R&D Performance
Success Rate = (number of successes) / ((number of terminations) + (number of successes))
7

8. 2. ROI for R&D in the Pharmaceutical Industry has
Turned Negative
R&D Investment as a Percentage of Sales Has
Increased, While ROI has Decreased
18 3.0
16 16 2.8
16 Sales/Capitalized R&D Investment 15 15
R&D/Sales 14 2.6
Sales/Capitalized R&D
14 13 13 2.4
2.2
12 11 11 2.0
R&D/Sales
1.8
10 9 1.6
8 8
8 7 1.4
6 1.2
6 5 1.0
0.8
4 0.6
2 0.4
0.2
0 0.0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Note: The capitalized R&D analysis is Sales for a given year/R&D spend for 11 years (adjusted for inflation).
Source: Credit Suisse / C. Arnold et al.; published in In Vivo: The Business & Medicine Report, April 2009
8

9. 3. Regulatory Landscape is More Difficult to Navigate
• The regulatory landscape is changing
• Outcomes data often requested prior to drug approval
• Greater emphasis on product safety requires extensive data
• Increased post-marketing regulatory requirements
• More requirements to conduct clinical trials in a country
as a prelude to registering and marketing a product
• Need good interaction with local regulatory agencies for clinical
trial authorization
9

10. 4. It’s Harder to Get a Drug Approved and Paid For
• Health Technology Assessment (HTA), value
demonstration, and effectiveness are increasingly
required for approval and/or reimbursement
Prescription Medicine Spending Growth Declined: 1998–2008
Source: CMS2
10

11. 5. Payor and Consumer Pressures are Mounting
Insurance Covers a Lower Share of Prescription
Drug Costs Than Other Medical Services
Percent of Spending for Each Type of Service Paid Out-of-Pocket:
Privately Insured People Under Age 65 with Prescription Drug Coverage
PhRMA Analysis: Medical Expenditure Panel Survey, 2007
11

12. 6. Patents are Expiring at a Record Rate
Blockbusters Total
45 97 products are predicted
41
to lose exclusivity in the
40 40
USA by 2013
35
34
Predicted number of products
32
30
This includes 15
25
24
blockbusters with sales >
22 $1 billion per annum
20
19
15
10
$60 billion worth of
products going off patent
5
5 6 3 3 3 by 2011
4 3
0
2011 2012 2013 2014 2015 2016 2017
Year of predicted loss of exclusivity in the USA
12 CMR International, 2011 Global R&D& Clinical Programmes

13. 7. Global Reach is Now an Imperative
• Economies of emerging markets are growing more than
twice as fast as the developed world
• Diversified populations must be enrolled in trials
• Regulators increasingly want clinical trials to include specific
populations in their own countries / environments / cultures
• Executing global clinical trials is more difficult than ever
• Protocols are increasingly complicated
• Western European market is increasingly costly
• Strong, growing competition in key emerging market countries for
resources, including access to:
– Qualified investigators
– Patient populations
– Vendor partnerships
13

14. 8. Medicines Must Address Changing Needs
• Some major diseases have been partially conquered:
• 45% decline in heart attack deaths and heart failure from 1999 to
2005*
• U.S. AIDS deaths decreased dramatically following the
introduction of highly active antiretroviral treatment**
• Improvements in treatment have helped reduce mortality in
certain cancers by up to 50% or more during 30-year period***
• Aging populations call for
emphasis on different therapy areas:
• Alzheimer's… Parkinson’s
• New ways to manage chronic
conditions: Diabetes… Arthritis
• Innovation is the key to success!
* Source: K. Fox, et al. Journal of the American Medical Profession 297, 2007
**Source: Center of Disease Control, 2009
*** Source: D.K. Epsey, et al, Cancer 116, no. 3, 2010
14

15. CHOICES

16. Choices: Pharma’s Present—and Future—Path
How are we choosing to:
• Respond to economic and investor pressures?
• Ensure that we get new products to market?
• Gain efficiencies and expedite
clinical trial execution?
• Foster Innovation?
CONSOLIDATIONS
PORTFOLIO PRIORITIZATION
PARTNERSHIPS
OUTSOURCING
EXECUTIONAL EXCELLENCE
GLOBALIZATION
INNOVATION …. AND MORE!
16

17. Responding to Economic and Investor Pressures
CONSOLIDATIONS
• Mergers within the last few years consolidated some
major pharmaceutical “powerhouses”
• Pfizer /Wyeth; Roche /Genentech; Merck /Schering-Plough
• Integrating companies results in positives and negatives:
That sucking sound? Layoffs
July 8, 2010 1:13 PM
draining brains from pharma
Merck Closing 8 Plants, August 22, 2011
8 Research Sites
October 25, 2011, 12:38 PM GMT
Job Cuts Hurt, But Will Save Novartis Future Pain
17

18. New Strategies Rationalizing R&D Spending
PRIORITIZING PORTFOLIOS
• Some companies are slashing R&D spending in
response to investor demands
• Others are prioritizing
investments based on more
calculated risks / returns
• Harder look at early
development programs
• Increased willingness to
“kill” programs earlier and
more often
• Changing incentives / rewards
to match changing strategy
18

19. Increases in Early Development Candidates Did
Not Translate Into More Product Launches….
PORTFOLIO PRIORITIZATION
Early Late development
development Prior to 2007 it appeared that
450 426 companies were adopting a “shots
400 365
on goal” strategy
350 329 Strategy resulted in an 87%
282
87% increase in early development
300 261
pipelines between 2002-2007
250 228
However, this increase did not
200
appear to make much impact in
150 Late Development numbers
100 67
51 46 49 54 59 Study of 83 failed Phase III
50 31% compounds showed 66%
0 terminated due to lack of efficacy
2002 2003 2004 2005 2006 2007
Inferred that many compounds
progressed not on scientific merit,
but in attempts to fill the gap left by
Early Development = Preclinical, Phase I and Phase II impending patent expiries
Late Development = Phase III and Submission
© CMR International, a Thomson Reuters business
19

20. More Prioritization of Development Programs
PORTFOLIO PRIORITIZATION
Early Development pipeline
Early Late development
development has decreased by
450 426 approximately 50% since
393 2007
400 365
350 329 Late Development pipeline
282 50% 290 has remained more stable but
300
261
has also seen a decline of
250 228
212 around 50% since 2007
200
This may indicate 2 things:
150
The poor quality of previous
100
51 46 49 54 59 67
55 Phase II pipelines
33 32
50 48% A change in strategy away
0 from Quantity towards
2002 2003 2004 2005 2006 2007 2008 2009 2010
Quality
Early Development = Preclinical, Phase I and Phase II
Late Development = Phase III and Submission
© CMR International, a Thomson Reuters business
20

21. Increased Use of Adaptive Trials
PORTFOLIO PRIORITIZATION
• Companies increasingly choosing to determine a drug's
benefit/risk ratio at specific study points in pivotal trials
• Rise in adaptive designs for clinical trials
• In adaptive trials, decisions for mid-study changes can be made
at predetermined opportunity points
• Decisions based on information available to date
– No waiting for total trial data
• Greater use of sophisticated portfolio management
techniques
• Stop the development process sooner,
not later if a drug won't prove safe,
effective or be approved for sale
21

22. New, Improved Partnering Opportunities
PARTNERSHIPS
• Companies can expand product development via joint ventures,
research university agreements to share R&D costs
Proportion of Total R&D Expenditures on Alliances or Joint Ventures
By Stage of R&D in 2009
All Companies Major Mid and Other
Research Early Development Late Development International Roll Out
s & Line Extensions
22 CMR International, 2010 Pharmaceutical R&D Factbook

23. Partnering for Global Reach, Improved Efficiency
PARTNERSHIPS
• Grow top line by creating new and
different partnerships:
• Strengthen push into global or emerging markets
• Improve bottom line in other areas:
– Manufacturing as well as clinical: Merck and UPS
– Outsourcing clinical activities to
Contract Research Organizations (CROs)
23

24. Clinical Outsourcing Expected to Increase
(Functional and Programmatic)
OUTSOURCING
Programmatic outsourcing
Projected change in industry can range from 100 percent
outsourcing rates over the next of a company’s book of
3-5 years1 business to a small slice of
Percent of responses, n=25 the pie
28 Functional outsourcing of
Continue at specific clinical tasks is
today’s levels
increasingly common
28 Sponsors remain
responsible for all parts of
8 64 Increase clinical trial oversight
Increase by between
Need strong Master Service
more than 10% 1-10%
Agreements and appropriate
1 Weighted average of survey responses metrics to ensure quality and
Source: McKinsey & Company Survey, February 2010 analysis
timeliness of deliverables
24

25. Strategic Rationale for More Clinical Outsourcing
OUTSOURCING
• Quality and capabilities of major Contract Resource
Organizations (CROs) have increased worldwide
• Provide more access to global capabilities and infrastructure for
conducting clinical trials
• Improves a pharma company’s flexibility in adjusting to a
volatile book of business and associated labor demands
• Reduces fixed operating costs
• Meets demands for specific job roles while potentially moving
some work to lower-cost geographies with skilled workforces
• Reduces risk for “stranded resources” when studies end
• Allows companies to focus on core capabilities internally
• Provides performance /cost transparency
25

26. Battling Increased Complexity of Clinical Trials
EXECUTIONAL EXCELLENCE
2000 2010 Change
Changes in Clinical Trials: Resources, Length and Participation
Total Procedures per Trial Protocol (Median) 101.5 164.6 62%
Clinical Trial Staff Work Burden (Median Work-Effort 28.9 46.5 61%
Units)
Length of Clinical Trial (Median Days) 472 768 63%
Total eligibility criteria per protocol (median) 31 54 74%
Number of Countries Participating in Phase III 11 34 209%
Pivotal Trials (Mean)
Clinical Trial Participant Enrollment Rate 75% 58% -17% points
Clinical Trial Participant Retention Rate 69% 43% -26% points
Source: Tufts Center for the Study of Drug Development
26

27. Expediting Clinical Trial Execution
EXECUTIONAL EXCELLENCE
• Global clinical trials are very difficult to plan and manage
• Need the right protocol… right mix of countries … right
investigators…high-performing Clinical Trial Teams
– Including internal and contracted resources globally
• Need sites to initiate on time
– With drug on hand and EDC ready to go
• Appropriate monitoring plans must be in place
• Review patient enrollment plans
• Verify storage conditions for clinical supplies
• Review emergency un-blinding procedures
• Perform source data verification
• Last but not least: we need patients!
27

28. Improving Patient Recruitment
EXECUTIONAL EXCELLENCE
• Variety of patient enrollment factors
• Eligibility
• Willing participation; good retention rate
• Accurate patient enrollment projections are necessary
for success
• Under-estimating patient enrollment leads
to too many patients enrolling too soon
• Lagging behind enrollment projections
impacts schedule and resources
• Experimenting with new technologies /
social media for qualified patient
recruitment
28

29. Patient Enrollment Ex-US is On the Upswing
GLOBALIZATION
Proportional Change of Enrolled Patients in Each
Geographical Region Between 2002 and 2008
2002 2008
EU Core 14% 17%
EU Non-Core 12% 18%
EU Accession 7% 10%
North America
2002 2008
53% 32%
ME & Africa
2002 2008
3% 3% SE Asia & W Pacific
2002 2008
6% 11%
Latin America
2002 2008
6% 8%
CMR International 2010 Pharmaceutical R&D Factbook
29

30. More Emphasis on Country Site Selections
GLOBALIZATION
• Appropriate selection of countries for clinical trials, based on:
• Good access to patients
• Disease state/standard of care compatible with protocol
• Quality of available investigators:
– Sufficiently trained staff to manage study procedures
– Healthcare professionals who understand clinical trials, ICH / GCPs
– Understand local regulatory requirements and healthcare environment
• Adequate facility for evaluating patients
and performing study procedures
– Good storage conditions for clinical supplies
– Ability to perform source data verification
• Speed of regulatory / Institutional
Review Board (IRB) Approvals
• Cost of doing business
30

31. Improved Tools for Planning & Predictability
EXECUTIONAL EXCELLENCE
Planning: Robust Benchmarking and Simulations:
PA to FPE
FPE to LPE PA to LPE Monte Carlo
CMR Data Ph
Months (Days)
Months Months Sites # Patients Pt/Site # studies
Simulations:
(Days) (Days)
3.85 9.03 13.22
Industry Median IIb 66 664 7.1 8
(117) (274.5) (402)
Industry 25th 3.34 7.28 12.01
IIb 45 450 4.0 8
Percentile (101.5) (221.25) (365.25)
Execution: Predictive Analytics:
Study Optimizer:
Screening &
Randomization
Site
Site Ready Planned
Ready
Actual &
Planned
Projected
Screening &
Randomization
Actual & Projected

32. Race to Meet Major, Unmet Medical Challenges
INNOVATION
• Need Treatments for Alzheimer’s Disease
Projected Annual Medicare & Medicaid Spending, With and Without
New Treatment Advances (billions)*
* Assumes research breakthroughs that delay
the average age of onset of Alzheimer’s
disease by five years beginning in 2010
Source: Alzheimer’s Association
32

33. Need New Treatments for Degenerative Disorders
INNOVATION
• Parkinson’s Disease Costs Society $27 billion Per Year
in Medical Bills and Lost Wages
Projected Worldwide Increase in Prevalence of Parkinson’s Disease
E.R. Dorsey, et al: Neurology 68, no. 5 (2007)
33

34. Competition is Increasingly Internal, Too
INNOVATION
Bold Way to Spur
Innovation
In 2008, GSK
Research split into
competitive teams
(Discovery
Performance Units)
with scientists at the
center
Compete for funds
after a three-year
review, due in 1st Qtr.
2012
Teams who fail to
meet targets may be
disbanded
34

35. CHANGES

36. We Must Adapt Behavior, Culture to New Reality
• Work differently to be successful
• Changing internal culture and behaviors is not easy
• “Big Pharma” had long been a stronghold in the economy
– Viewed as secure, high-quality employers and corporate citizens
• Now we are an industry under siege – from payers and
consumers
• Commit to increasing external licensing and research
• R&D investment is too costly to always be done alone
• Make globalization work
• People need our medicines everywhere
• Partnering can help us reach patients
and markets without substantial internal
investments
36

37. What Has to Change in Development for Big
Pharma?
• Organizational inertia
• Overcome tendency to just keep doing things the way we always have
• Build structures that are flexible and adaptable to constant changes in
demography and geography of the development portfolio
• Aversion to constant process evolution
• Alleviate concerns that changing something will impact safety or
compliance
• “Not invented here” syndrome
• Be willing to partner on innovative therapies and new ways of operating
• Cultivate and enhance capabilities in vendor oversight and management
– Without doing their work for them!
• Change attitude that vendors are “just” service providers
• Build strong relationships with vendors across all levels of organization
• Work collaboratively, as one team
• Make vendor oversight and management a core capability
37

38. Exploring the Ways to “Get it Right”
38